What are the cryptocurrency regulations in the UK?
Cryptocurrencies are currently unregulated in the UK – a situation that brings positives and negatives. On the positive side, trading in cryptocurrency is not prohibited, as it is in China, or restricted, as it is in South Korea. However, the downside is that consumers have little protection if things go wrong. In November 2017, the Financial Conduct Authority (FCA) warned consumers that cryptocurrencies are “high risk, speculative products”.
The fact that cryptocurrencies are unregulated does not mean that anything goes. Exchanges are legal but must be registered with the FCA and are subject to the same anti-money laundering rules as other financial services companies.
Likewise, any profits on cryptocurrencies are subject to the same tax laws as any other financial gains. Depending on status, this could mean paying income tax, capital gains tax or corporation tax on any profits received. It could also, in some circumstances, allow for any losses on cryptocurrency investments to be offset against other earnings. Anyone who is unsure should consult Her Majesty’s Revenue and Customs (HMRC) or an accountant.
Cryptocurrencies are not considered legal tender in the UK. That means that they are not legally recognised as a means of purchasing goods and services or paying debts. In practice, this means that your local shop might well decide to accept Bitcoins and you could then use them as payment when shopping there, but nobody is under a legal obligation to accept them. Your mortgage company can refuse to accept payment in Bitcoin but it cannot refuse payment in pounds sterling.
The atmosphere is somewhat hostile for cryptocurrencies. Mark Carney, the governor of the Bank of England, has dismissed the rise in value of cryptocurrencies as sign of a “speculative mania” and said they have “pretty much failed” to meet the standard definitions of money.
There are typically three main functions of money: a medium of exchange; a measure of value; and a store of value. Mr Carney said of Bitcoin that “nobody uses it as a medium of exchange” and pointed to the volatile price levels as a sign that it fails as a store of value too.
Mr Carney will leave his job in 2019 so it is possible that his replacement will take a more benevolent view of the new technology.
Meanwhile, in early 2018, Parliament’s Treasury Committee launched an inquiry into cryptocurrencies to determine whether and how they should be regulated. Nicky Morgan, the chair of the committee, emphasised that the government is keen to avoid stifling innovation but wants to “provide adequate protection for consumers and businesses”.
It is likely that the regulatory landscape in the UK with regard to cryptocurrencies will remain in flux for the next few years.